Time to awaken to the sleep­ing gi­ant

Howdy folks! Things are not re­ally that good in the man­u­fac­tur­ing sec­tor, and all the promised and over­due poli­cies should be brought into the pic­ture soon to turn things around.

The Sunday Mail (Zimbabwe) - - OPINION & ANALYSIS - Cle­mence Machadu In­sight

LAST week, the Con­fed­er­a­tion of Zim­babwe In­dus­tries re­leased its 2017 Man­u­fac­tur­ing Sec­tor Sur­vey, and from it we can see that in­dus­try is still be­set by a myr­iad of chal­lenges.

Ac­cord­ing to the sur­vey, 69 per­cent of in­dus­tri­al­ists de­creased their wage bills at a time the cost of liv­ing is go­ing up.

Some 23 per­cent re­trenched per­ma­nent em­ploy­ees, and 53 per­cent of firms en­coun­tered work­place in­juries. Only 25 per­cent of firms had med­i­cal in­sur­ance for their non-per­ma­nent em­ploy­ees. This at a time when most em­ploy­ees are non-per­ma­nent!

Isn’t it a be­trayal of the de­cent work agenda?

Folks, from my pe­rusal of the sur­vey re­sults, I con­clude that the man­u­fac­tur­ing sec­tor is still a sleep­ing gi­ant and its present con­tri­bu­tion in the grand scheme of things is ridicu­lous.

While it makes sense that the de­cline in ca­pac­ity util­i­sa­tion to 45,1 per­cent does not rep­re­sent sub­dued out­put, the in­crease in out­put it­self is still in­signif­i­cant and doesn’t yet call for pop­ping cham­pagne bot­tles.

Come to think of it, af­ter shut­ting down Zim­babwe’s bor­ders to some im­ports, out­put vol­umes recorded a mod­est in­crease of 5,5 per­cent!

Does the end jus­tify the means here?

Can all the de­mand that was shifted from for­eign prod­ucts to lo­cal ones be sat­is­fied by a mere out­put in­crease of 5,5 per­cent?

Granted, raw ma­te­rial short­ages and for­eign ex­change avail­abil­ity chal­lenges played a role in sup­press­ing pro­duc­tion.

But while it is ar­gued that ca­pac­ity util­i­sa­tion some­how de­clined on ac­count of over-in­vest­ment in ma­chin­ery, the equip­ment age pro­file, how­ever, shows that only 3,7 per­cent of equip­ment is less than a year old – which may not re­ally point to over-in­vest­ment over the past year, un­less we now have mo­nop­o­lies through­out the dif­fer­ent sub-sec­tors of in­dus­try.

The ma­jor­ity of equip­ment is very old and one won­ders what its net book value is.

In light of the above, the ef­fi­cacy of pro­tec­tion should be vig­or­ously in­ter­ro­gated with a view to see­ing how to make it work bet­ter and en­hance ca­pac­ity and out­put dy­nam­i­cally and sus­tain­ably.

Right now, thanks to pro­tec­tion, lo­cal in­dus­tries have to first meet lo­cal de­mand be­fore also think­ing about ven­tur­ing into ex­ports that are needed to gen­er­ate for­eign cur­rency.

And their need for for­eign ex­change, im­ported raw ma­te­ri­als and re­tool­ing has in­creased to meet surg­ing de­mand.

What can be ob­served is the need for a de­par­ture from piece­meal poli­cies.

Right now, Gov­ern­ment is duck­ing and div­ing on align­ing the in­di­geni­sa­tion law with clar­i­fi­ca­tions made by the Head of State a long time ago.

The Lo­cal Con­tent Pol­icy that was sup­posed to be im­ple­mented start­ing mid-year is still to see the light of day de­spite it hav­ing been in­cluded in the 100-Day Rapid Re­sults Ini­tia­tive.

Now we hear that the Value-Ad­di­tion and Ben­e­fi­ci­a­tion Clus­ter, which is run­ning with the is­sue, is just 30 per­cent on tar­get.

So Gov­ern­ment needs to play its part to the fullest, while in­dus­try should also in­crease its ef­forts.

The ques­tion that re­mains at the back of the mind is: what will hap­pen if pro­tec­tion is lifted to­day? Are lo­cal play­ers com­pet­i­tive enough to with­stand com­pe­ti­tion when pro­tec­tion flood­gates are lifted?

While in­dus­tri­al­ists are bank­ing on in­creas­ing ex­ports as a means to deal with cash short­ages, as high­lighted in the sur­vey, ex­ports are only a piece of the puz­zle.

For starters, man­u­fac­tured ex­ports are largely con­cen­trated re­gion­ally, which calls for more di­ver­si­fi­ca­tion into other at­trac­tive ex­port mar­kets.

While South Africa might be re­garded as a saviour, it should be noted that the cur­rent trade struc­ture with our coun­ter­part across the Lim­popo also poses a risk given the high de­pen­dence lev­els on that coun­try for just about ev­ery­thing we need.

A clas­sic in­stance is that of LP gas short­ages which we ex­pe­ri­enced a cou­ple of years ago due to an ex­port cut by a South Africa that was strug­gling to meet do­mes­tic de­mand.

It can also be ob­served from the sur­vey re­sults that raw ma­te­ri­als sourced lo­cally de­creased from 84 per­cent in 2016 to 64 per­cent in 2017.

In other words, it im­plies that the per­cent­age of raw ma­te­ri­als sourced abroad has in­creased from 16 per­cent in 2016 to 36 per­cent, which ob­vi­ously wors­ens pres­sure on the elu­sive for­eign ex­change. This should be ad­dressed. There is need to con­duct a raw ma­te­ri­als as­sess­ment and come up with poli­cies that en­sure the do­mes­tic mar­ket meets all that can be pro­vided lo­cally with­out re­sort­ing to im­por­ta­tion.

Im­port-sub­sti­tu­tion of fin­ished goods should be com­ple­mented with im­port-sub­sti­tu­tion of raw ma­te­ri­als.

In terms of pric­ing, one can no­tice that most man­u­fac­tur­ers are still us­ing the ar­chaic mark-up-over-cost pric­ing model; ac­tu­ally 65 per­cent of them.

Surely, for com­pa­nies that are tar­get­ing to be com­pet­i­tive on the global mar­ket, there is need to also adopt com­pet­i­tive pric­ing mod­els.

Mark-up-over-cost pric­ing sim­ply says if the cost of mak­ing bread is, say, US$2, then ap­ply a mark-up of 20 per­cent to come up with a fi­nal price of US$2,40.

But who will buy bread at that price?

This sort of pric­ing phi­los­o­phy does not re­ally com­pel the pro­ducer to pay at­ten­tion to cost ra­tio­nal­i­sa­tion and ef­fi­ciency.

It is also dis­ap­point­ing to note that there is a huge dis­con­nect be­tween lo­cal in­dus­tries and uni­ver­si­ties.

This is a time when in­no­va­tion and cre­ativ­ity are needed the most, yet the lev­els of col­lab­o­ra­tion with lo­cal uni­ver­si­ties are still de­plorable.

Only two per­cent col­lab­o­rate ex­ten­sively with lo­cal uni­ver­si­ties, while nine per­cent col­lab­o­rate. So, where do the ideas come from?

Th­ese two sec­tors should re­ally en­hance their col­lab­o­ra­tion to im­prove in­dus­trial pro­duc­tion and pro­duc­tiv­ity.

The re­search also un­veils the hypocrisy of many in­dus­tri­al­ists when it comes to sus­tain­able en­ergy use and con­ser­va­tion.

From the sur­vey, the ma­jor­ity of in­dus­tri­al­ists cited pro­mo­tion of af­ford­able al­ter­na­tive sources of en­ergy as one of the ma­jor so­lu­tions to the power sit­u­a­tion.

Yet, 81 per­cent of them use generators as their back-up power supply.

Apart from be­ing ex­pen­sive, generators also use fuel im­ported from out­side the coun­try, adding to the al­ready high im­port bill.

Again, vir­tu­ally all of them, 96 per­cent to be spe­cific, use elec­tric­ity as their pri­mary en­ergy source.

This at a time when we have elec­tric­ity deficits, with the coun­try im­port­ing power from other re­gional coun­tries.

This should sig­nal CZI to ex­hort its mem­bers to utilise other re­new­able en­ergy sources such as so­lar, among oth­ers.

Later folks!

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